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Johannesburg - Real house price growth slowed down to 2.5% year-on-year (y/y) in March from 3.5% y/y in February this year, despite the fact that inflation remained low at 4% y/y in March, according to the latest Absa House Price Index released on Thursday.
The term "real" means the price growth after the adjustment determined by the consumer price inflation.
The downward trend in the year-on-year growth in the average nominal value of middle-segment homes in the South African residential property market continued up to April this year, according to the index.
This trend had started in the fourth quarter of 2014.
"It is believed that economic conditions and factors related to household finances, such as economic growth, inflation, interest rates, consumer credit-risk profiles, confidence as well as the outlook for these variables, are currently some of the main driving factors of property market conditions and trends in house prices," said Jacques du Toit, property analyst at Absa Home Loans.
"The slowdown in nominal year-on-year house price growth over the past six months was also affected by a declining trend in month-on-month price growth since early 2014."
With nominal house price growth trending down, real price inflation also tapered off, despite the relatively low inflation rate of 4.1% y/y in the first quarter of the year.
Nominal house price growth came to 5.7% y/y in April 2015, declining further from a revised 6.7% y/y in March, after touching on 10% y/y in August to October last year. On a monthly basis, prices deflated marginally by a nominal 0.1% in April.
READ: The slow puncture of property prices has begun
Average nominal value of homes in middle-segment categories in April 2015:
- Small homes (80m²-140m²): R851 000
- Medium-sized homes (141m²-220 m²): R1 205 000
- Large homes (221m²-400m²): R1 828 000
READ: Unemployment dents house price growth - Rode
Real terms, interest rates
"However, with inflation expected to be on a rising trend for the rest of the year, real house price growth is forecast to come under further downward pressure in the near term," cautioned Du Toit.
"Inflationary pressures will increase the focus on interest rates, which are projected to be hiked before year-end and through 2016."
Rising inflation and interest rates will adversely affect household finances and levels of confidence, eventually impacting the residential property market.
"Against this background, nominal house price growth is forecast to remain in single digits throughout the year, with real price growth to reflect trends in inflation in months to come," he said.
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